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Australian shares have suffered their worst trading day in seven months, on persisting worries about rising inflation and the uncertainty surrounding cash-strapped Chinese property developer Evergrande.
By 12:15pm AEST, the benchmark ASX 200 was down 169 points (or 2.3 per cent) to 7,172. This was its biggest daily percentage drop since late February.
Essentially, the local share market has wiped out all its gains since early June, over the course of this volatile week.
The Australian dollar was trading at 72.22 US cents, after rising by a significant 0.7 per cent.
September has traditionally been a weak month for share markets, and the ASX 200 index dropped 2.7 per cent over the course of that month.
Nearly every stock was in the red, and some of today's worst performers were Commonwealth Bank (-4.3pc), Virgin Money UK (-6.9pc), Reece (-5.9pc), Domino's Pizza (-5.4pc), Mineral Resources (-5.5pc), Unibail Rodamco Westfield (-5.2pc), and Charter Hall (-4.4pc).
Meanwhile, gold stocks recorded the biggest gains after the precious metal's spot price jumped overnight.
Shares in St Barbara (+2.4pc), Evolution Mining (+2.6pc), Silver Lake Resources (+3.4pc), Regis Resources (+2.2pc) and Northern Star Resources (+28pc) lifted sharply.
Overnight on Wall Street, the Dow Jones index fell by 1.6 per cent to 33,843 and the Nasdaq Composite dropped 0.4 per cent to 14,449 points.
The S&P 500 lost 1.2 per cent to 4,307 on Thursday (US time).
Overall, the benchmark US index dropped 4.5 per cent in September, making it the S&P's worst month since March 2020 (the very early stages of the pandemic).
Evergrande misses another payment
China's second largest property developer Evergrande has missed two deadlines to pay over $180 million worth of interest to foreign investors, who hold its US dollar-denominated bonds, in the space of one week.
But the company has made a partial payment to some onshore investors who hold yuan-denominated bonds.
The embattled property firm, reeling under a debt pile of $421 billion ($US305b), was due to make a $65.7 million ($US47.5m) bond interest payment on its 9.5 per cent March 2024 dollar bond on Wednesday.
It also failed to make $115.5 million ($US83.5m) in coupon payments to offshore bondholders last Thursday.
With liabilities equal to 2 per cent of China's GDP, Evergrande has sparked concerns its woes could spread through the financial system and reverberate around the world.
But worries have eased somewhat after China's central bank, on Wednesday, vowed to protect homebuyers' interests.
The People's Bank of China urged financial institutions to cooperate with relevant departments and local governments to maintain the "stable and healthy" development of the real estate market and safeguard housing consumers' interests.
Evergrande's silence on its offshore payment obligations has, however, left global investors wondering if they will have to swallow large losses when 30-day grace periods end for coupons that were due on September 23 and 29.
China won't bail out Evergrande (directly)
"With its US dollar bonds trading at around 25 cents in the dollar, investors have already priced an almost certain default," NAB's head of foreign exchange strategy Ray Attrill wrote in a note.
"There is keen interest in what if anything provincial governments might do over the week-long Golden Week holiday regarding protection for those who have paid deposits for houses as yet unfinished, unpaid suppliers, etc."
Beijing is unlikely to intervene directly to resolve Evergrande's crisis in the form of a bailout, but analysts say it is wary of a messy collapse that could fuel unrest.
The company, which has nearly $27.6 billion ($US20b) in offshore debt, is also facing deadlines in the next month to pay $224.6 million ($US162.4m) worth of interest on its US dollar bonds.
Once China's top-selling developer, Evergrande is now expected to be one of the largest-ever restructurings in the country. It has been prioritising its domestic liabilities amid concerns that its troubles could trigger social upheaval in China.
"I can't see there being much willingness to give a fairer outcome to offshore bondholders rather than onshore banks, let alone house buyers and people who have lent onshore through the personal loan structures," said Alexander Aitken, a partner at Herbert Smith Freehills in Hong Kong.
"Of course legally there is also structural subordination from being offshore, which means lenders to Evergrande's onshore subsidiaries get paid before lenders to the parent company or any offshore debt issuer."
Market sinks despite US budget deal
Earlier in the week global markets suffered their worst sell-off since January, and a heavy tech sell-off on Tuesday led to Wall Street suffering its steepest drop since mid-July.
Although major US and European stock indices staged a partial recovery on Wednesday, they were unable to build on this momentum.
Overnight, US Congress approved a stopgap spending bill to avoid a government shutdown.
The House of Representatives approved the measure to fund the government through December 3 in a bipartisan 254-175 vote, hours after it passed the Senate 65-35.
It will now go to US President Joe Biden for signing before funding runs out at midnight (US time).
However, after a brief market uptick, stocks on Wall Street resumed their decline, dragging the tech-heavy Nasdaq into the red, even though it had traded higher for most of the day.
"The market’s been resilient, but the risk tied up in the policy headlines over the debt ceiling, the chaos around these spending bills is weighing on the markets a bit as the quarter comes to a head," said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.
"In a larger context it’s been pretty mild. We’re coming on the heels of seven 'up' months and volatility’s been fairly muted despite the headline risks, not to mention COVID-19 and tapering.
Inflation concerns flaring up
On Wednesday, Federal Reserve chair Jerome Powell said resolving "tension" between high inflation and high unemployment was the Fed's most urgent issue.
Mr Powell acknowledged there was a potential conflict between the US central bank's two goals of stable prices and full employment.
The Fed chair previously argued that the spike in inflation would be "transitory". But the unexpected surge in oil prices (to a three-year high) is putting that view to the test, as increasingly pessimistic stock market investors are betting it might persist for a while.
Meanwhile, electricity prices in France are expected to rise around 12 per cent by February, French environment minister Barbara Pompili said on Thursday, highlighting inflationary pressures sweeping across Europe.
French inflation hit a near 10-year high of 2.7 per cent in September, official numbers showed, slightly less than forecast.
Italy's annual inflation rate rose to 3 per cent.
"This is not a broad-based inflationary spiral," Oxford Economics analysts wrote in a note, though they added there was "little relief in sight for the record high energy prices in the coming months, with the severity of this winter a key factor."
ABC/Reuters